It's not easy refinancing a rental property mortgage nowadays. The lending market has tightened up with higher rates and fears of another recession. This article will discuss the documents needed to refinance a rental property mortgage.
Rental property mortgages are always between 25 to 50 basis points higher than a primary home mortgage due to risk. Banks believe as a landlord, you depend on a tenant to help you pay the mortgage. Therefore, the landlord is taking on the extra risk that you may not be a good landlord or you may have bad tenants.
Documents Needed To Refinance A Rental Property Mortgage
Refinancing a rental property is kind of like having an upset stomach in the middle of a 10-hour bus ride to nowhere. The more you can prepare yourself for hell, the better. Once you get through the process, you can sit back and enjoy taking advantage of cheap money for years.
The following are documents specific to a rental property refinance, but they can overlap with a primary residence refinance as well.
* Rental lease. The bank wants to see that you have a tenant, and what the rental income number is to assume in their underwriting calculations.
* Proof of rent deposit. One can easily forge a rental lease agreement, so the bank wants to see a record of the rental deposit that verifies with the rental lease.
* HOA meeting notes, and financial reserves. To get this info, you've got to ping your HOA President, Secretary, and Treasurer. It is painful to bother other people, so make sure you are on good terms.
* Homeowners Association insurance. The bank needs to know the HOA entity, and all the property outside your walls are insured.
* Homeowners insurance. You must also have insurance that protects the inside of your walls, otherwise a bank won't lend.
* Bank statements to show your cash balances. The more cash you have the better obviously. Banks will generally ask for the last two months.
* Brokerage statements to see your semi-liquid assets. These statements aren't as vital, but will often be asked.
* 401k/IRA statements. These statements aren't asked often, but they are good to have if your income or credit score is a little light, and you need some extra firepower to get you over the hump.
* K1 forms if you invest in private companies. Even though my private equity investments have nothing to do with my cash flow, the bank still requests the statements every single time. These statements are usually a drag on your finances since you're investing in speculative companies that are often loss making.
* Credit report(s). The banks should pull your credit as part of your refinance fee. Although you should seriously consider checking your credit score for free before applying to save you any hassle or embarrassment.
* W2 form. Probably the most crucial of all documents. If you don't have one, you've got to emphasize your other income streams and assets. Most entrepreneurs and freelancers with less than two years of self-employment income will have a brutal time getting a mortgage. The other alternative is getting an asset based loan.
* A personal letter. It's always a good idea to humanize yourself and explain why you would like to refinance your rental property. Talk about how your rental property is something you cherish for your retirement. Tell them how you first lived in the home and plan to keep it forever. It's all about creating a personal connection to help get you over the hump.
As you can see, there are many documents needed to refinance! One thing I advise is to never give the bank more than they ask. You want to provide just enough so that you qualify and no more. Your mortgage officer will likely say the same thing after asking for your initial statements.
You will be dealing with the mortgage officer, who acts as a liaison with the mortgage underwriter. Your mortgage officer is on your side, but the underwriter decides your fate.
Be Prepared For A Long Rental Property Mortgage Refinance
Depending on your income situation, getting a mortgage or refinancing now can get very tricky, especially for rental properties. Lending standards are still tight. Expect your rental property mortgage refinance to easily take two months or longer.
It's always curious to see how the government says one thing and does another. Here's a very candid perspective of why it's so hard to get a mortgage from a loan officer's perspective. You might not like what he has to say, but it's worth hearing his perspective.
It's important to always refinance your property before you quit your job and no longer earn W2 income. Another logical thing to do is to always refinance your primary residence before you make it a rental.
Refinancing a rental property will test your patience and your sanity. But if you can get through the multi-month long process, you will save a ton of money in the end.
Now that you know all the documents needed to refinance a rental property, you must take advantage of record-low mortgage rates.
Invest In Real Estate More Surgically
I'm very bullish on real estate and think buying physical rental properties makes a lot of sense. Interest rates are still relatively low, making the value of rental property more valuable.
If you don't have the downpayment to buy a property, don't want to deal with the hassle of managing real estate, or don't want to tie up your liquidity in physical real estate, take a look at Fundrise, one of the largest real estate crowdsourcing companies today. It is free to sign up and explore. Fundrise has over 500,000 investors and manages over $3.3 billion.
The other favorite real estate crowdfunding platform, for accredited investors, is CrowdStreet. CrowdStreet focuses on 18-hour cities where valuations are lower, growth rates are higher, and cap rates are higher. If you have a lot more capital, you can build your own select real estate portfolio. CrowdStreet is also free to sign up and explore.
Both platforms are sponsors of Financial samurai and Financial Samurai is a six-figure investor in Fundrise.
Get A Better Mortgage Rate When Purchasing
Check the latest mortgage rates online. You'll get real quotes from pre-vetted, qualified lenders in under three minutes. The more free mortgage rate quotes you can get, the better. This way, you feel confident knowing you're getting the lowest rate for your situation. Further, you can make lenders compete for your business.
Documents Need To Refinance A Mortgage is a Financial Samurai original post. Financial Samurai began in 2009 and is the leading personal finance site in the world.